Wednesday, 7 November 2012

Establishing Objectives and Budgeting for the Promotional Program

The
chapter starts with a question “Does it
Really Matter What We spend on Advertising?”

The
rule of business is that whatever they are investing is giving them any
benefits or is it just the sunk cost. Marketer wants to know that
advertisements belong to which category. First we should know why do we need
advertisements? Advertisements make the people aware of the product. If
Wilsdorf had never advertised about that Mercedes Gleitze wore Rolex watch
while swimming across the English Channel, no one would know that Rolex came up
with the latest technology of waterproof watches. Advertising about delivering/
communicating what a company can offer to its consumers through various
products and services. It reinforces the product’s message.

Many companies establish its brand value through advertisements. Apart
from awareness other factors like valuation and ability of the campaign to
differentiate the brand name and other response components are also come with
the package of advertising.

What is the significance of advertisements?

The answer to this question could be explained
through the picture of two fishes in two different pots. If we assume the two
pots are different companies and both of them have equal number of consumers.
Pot B has advertised about the products by providing more and more information
may be it has more to offer. Pot B can attract the consumer of the other
company as they fail to make aware their consumer how their brand is different
from the other and what more they can offer.

What is the Value of the Advertisement?

It
is very difficult to determine the value of the advertisement. The success can
be measured by marketing and communication objectives. Then what is the value
of objectives? It will guide to develop the integrated marketing communication
program. It is very essential to set the realistic objective and sometimes
companies don’t recognise the value to set the specific objectives for their
program and fails in order to achieve their goals.

To set the objectives communication plays a vital role. The interaction
and sharing of the ideas among the group makes easier to set objectives
accurately. There should be coordination within the company and the advertising
agency while making plans for advertisement and promotion of the
brand/product/service. If there are more parties then they should be involved
too wherever necessary.

All phases of a firm’s promotional strategy
should be based on establishing objectives, including budgeting, creative,
media decisions, direct marketing, public relations, sales promotion, and
re-seller support. These objective can also enables the decision making process
easier. There will be many options and management will make choices based on
which of the particular strategy matches the firm’s promotional objectives.

Objectives
provide benchmark, by which one can analyse the success or failure of the
promotional campaign.

One
of the characteristics of good objective is that they are measurable. By the
measuring property of the objective can specify the method, evaluate how well
the promotion program is working and how effective is the marketing
communication program is.

The
other character of good objective is the specified target audience. The target
audience could be segregate on the basis of geography, demographics, and
psychographics and behavior patterns.

Then
to determine the target market’s present position one should set the benchmark
measure. The benchmark could be on different parameters like awareness,
knowledge, image, attitude, intention and the how frequently the advertisements
should be changed so as to have an effective impression on their minds.

Lastly,
specified time period is the characteristic of good objectives. Depending on
the situation an advertisement could run for a month or for a year. One should
understand the target audience demand for new advertisements.

How do we determine the promotional
objectives?

Marketing objectives are built upon the foundation of thorough situation
analysis and hence the marketing plan is developed. The evolution of promotion
objectives is from the company’s marketing plan and it exists in its marketing
objectives.

Marketing objectives are defined in terms of
specific, measurable outputs (sales volume, market share, profits, and return
on investment). They should be quantifiable, realistic and attainable. However
the integrated marketing communications objectives are based on certain
communication tasks. It should align with the message that is to be delivering
to the target audience. The company should be able to translate their marketing
goals into communication goals and promotional objectives. The primary role of
IMC is to communicate the brands knowledge and interest, favourable attitudes
and image and purchase intentions. Consumer will not necessarily respond immediately
therefore advertiser should provide most relevant information and create
favourable disposition towards brand before they react.

Some of the managers consider that the
promotional program is sales oriented objectives. For them if the firm has spent
money on advertising and promotion it should influence the sales. There are
many factors that influence the sales.

Sometimes advertisements play vital role in
company’s marketing program and then sales oriented objectives help. They refer
advertising and sales promotion as the key determinants of brand’s market
share. Sales may not play a vital role but managers are needed to keep a closer
eye on the sales and market shares and make changes in the promotional programs
if needed.

Sometimes advertisements play vital role in
company’s marketing program and then sales oriented objectives help. They refer
advertising and sales promotion as the key determinants of brand’s market
share. Sales may not play a vital role but managers are needed to keep a closer
eye on the sales and market shares and make changes in the promotional programs
if needed.

There are various steps in the Lavidge and
Steiner hierarchy of effects model as the consumers is made aware of the
product through advertisement to the time he makes a decision to buy a
particular product.

What is DAGMAR? What is the relevance of this model in thischapter?

DAGMAR: Defining Advertising Goals for Measured
Advertising Results.

It was developed by Russell
Colley in 1961. This model is important to the development of specified
advertising goals and measuring advertising effectiveness.

There are four hierarchical
steps: Awareness, Comprehension, Conviction and action. (Same is describe
through the diagram below)

Few criticisms of DAGMAR
Model

1)Problems with the
response hierarchy: consumers may not follow the same sequence

2)Sales Objectives: it
doesn’t include the sales of the product which sales oriented company needs

3)Practicality and
Costs: Difficulties in implementing them

4)Inhibition of
Creativity: This model is too concerned with quantitative assessment of a
campaign’s impact on awareness, brand name recall, or specific persuasion
measures

How do we establish and allocate the promotion
budget?

The
managers/ company who understand the value of advertisement and promotion rest
assume it to be an expense instead of investment. Most of the models used to
establish advertising budgets can be categorized as taking an economic or a sales
response perspective

Marginal Analysis: as the expenditure increases for advertisement and
promotion the sales and gross margin increases too to a point.

Concave Downward Function Model talks about the diminishing law of microeconomics.
The amount of advertisement increases, its effect on consumer’s decision
decreases. The S-Shaped Response Curve says after certain amount of investment,
the advertising and promotional efforts show the effect and the sales
increases.

Budgeting Approaches:

Top-Down Approaches: In this approach a
budgetary amount is established and then the monies are passed to many
departments. This approach includes

a)The Affordable Method: The firm allocate the amount to be
spent on all operations of a company apart from advertisements and promotions;
only leftover is allocated to these departments.

b)The Arbitrary Allocation: In this approach the firms
allocate the budgetary amount without any theoretical knowledge just on the
intuitions.

c)Percentage of sales: The budgetary amount if allocated on
the basis of the sales of the product

d)Competitive parity: The managers allocate the budget by
matching the competition’s percentage-of-sales expenditure. The advantage of
this method is that it uses the collective wisdom, takes competition into
consideration which establishes the stability in the market.

e)Return on investment: The advertisements and promotions
are considered as investment and these firms expect return in terms of more
sales.

2)Bottom-Up Approaches:
It is more effective tool than the previous approach. In this approach both the
communication objectives and promotional objectives go hand in hand.

a)Objective and Task
Method: It consists of three steps- by defining the communication objectives to
attain; by formulating the detailed strategies and tasks needed to accomplish
them; assessing the costs associated with performance of these strategies and
tasks.

b)Payout Planning: In
this method, first the firm will analysis the basic idea of the revenues
generated and the cost incurred in 2 or 3 years; and accordingly allocate the
budget.

c)Quantitative Model:
In model uses the quantitative statistical technics to determine the relative
contribution of the advertising budget to sales.

When the managers determine the budget for advertising and promotion,
they should consider many other factors. Market size and potential, agency
policies and preferences of the management do influence the decision made in
this regard.